Income Tax Appellate Tribunal - Mumbai
Thomas Baker (Chemicals) P.Ltd, Mumbai vs Dcit 4(3)(1), Mumbai on 8 January, 2019
1 ITA No.583/Mum/2017 Thomas Baker (Chemicals) Private Limited Assessment Year :2012-13 आयकर अपीलीय अिधकरण "ई" ायपीठ मुं बई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI माननीय ी पवन िसंह, ाियक सद एवं माननीय ी मनोज कुमार अ वाल ,लेखा सद के सम ।
BEFORE HON'BLE SHRI PAWAN SINGH, JM AND HON'BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ I.T.A. No.583/Mum/2017 (िनधा रण वष / Assessment Year: 2012-13) Thomas Baker (Chemicals) Pvt. Ltd. Dy. Commissioner of Income 4, Bharat Mahal बनाम/ Tax-4(3)(1) 86, Netaji Subhash Road, Vs. Mumbai.
Marine Drive, Mumbai-400 002.
थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACT-4221-B (अ पीलाथ!/Appellant) : ("#थ! / Respondent) Assessee by : Ms. Kshipra Singhvi- Ld. AR Revenue by : S. Abhirama Karthikeyan - Ld.DR सुनवाई की तारीख/ : 02/01/2019 Date of Hearing घोषणा की तारीख / : 08/01/2019 Date of Pronouncement आदे श / O R D E R Per Manoj Kumar Aggarwal (Accountant Member)
1. Aforesaid appeal by assessee for Assessment Year [AY] 2012-13 contest the order of Ld. Commissioner of Income-Tax (Appeals)-9, Mumbai [CIT(A)], Appeal No. CIT(A)-9/Cir.4/285/2015-16 dated 21/10/2016.The revised grounds filed before us reads as under: -
1. On the facts and circumstances of the case and in law, the learned CIT (Appeals) has erred in sustaining the addition made by the Ld. Assessing 2 ITA No.583/Mum/2017 Thomas Baker (Chemicals) Private Limited Assessment Year :2012-13 Officer of Rs.22,06,916/- on account of difference in the value of opening and closing stock of finished goods.
2. On the facts and circumstances of the case and in law, the learned CIT (Appeals) has erred in not appreciating that opening stock and closing stock comprise of different items, having different values, and hence average rate of opening stock cannot be applied for closing stock valuation.
3. On the facts and circumstances of the case and in law, the appellant is a profit-making company, and hence addition made to the closing stock in the assessment for AY 2012-13 would be tax neutral.
4. On the facts and circumstances of the case and in law, the learned CIT (Appeals) has erred in sustaining the disallowance of commission Rs.3,62,604/- paid to M/s Thomas Baker Bio Science Pvt. Ltd., without appreciating that commission paid was for selling appellants products in the state of Karnataka.
The assessment for impugned AY was framed by Ld. Deputy Commissioner of Income Tax-4(3)(1), Mumbai [AO] in scrutiny assessment u/s 143(3) on 26/03/2015 wherein the income of the assessee was determined at Rs.83.84 Lacs after certain additions / disallowances as against returned income of Rs.54.04 Lacs filed by the assessee on 29/09/2012. As evident from grounds of appeal, the addition of Rs.23.06 Lacs on account of valuation of closing stock and another addition of Rs.3.62 Lacs, being commission paid to related party is the subject matter of this appeal. During impugned AY, the assessee being resident corporate entity was stated to be engaged in manufacturing & trading of laboratory chemicals. 2.1 During assessment proceedings, the perusal of financial statements revealed that the assessee reflected opening stock at Rs.430 Lacs and closing stock at Rs.522 Lacs. Accordingly, the assessee was asked to provide the requisite details in support of the same. Upon perusal of assessee's reply, it was observed that average rate per liter of certain finished goods lying in closing stock was taken by the assessee 3 ITA No.583/Mum/2017 Thomas Baker (Chemicals) Private Limited Assessment Year :2012-13 at Rs.122/- per liter whereas the rate in opening stock was Rs.137/- per liter. Adopting this rate of 137/- on finished goods of 157476 liter, the closing stock valuation was enhanced by Rs.23.06 Lacs which was added to the income of the assessee.
2.2 The disallowance of commission stem from the fact that the assessee claimed commission payment of Rs.32.08 Lacs in the Profit & Loss Account. Out of this amount, an amount of Rs.3.62 Lacs was stated to be paid to a related entity namely Thomas Baker Bio Science Pvt. Ltd. (earlier known as Miss Cherie Cosmetics Pvt. Ltd.). The commission was stated to be paid at the rate of 6% of total business of Rs.55.92 Lacs generated by the said entity in the state of Karnataka. However, not satisfied, Ld. AO formed an opinion that the payment was paid to avoid tax liability since the payee was loss-making entity and further, there was no evidence of rendering of any services by the aforesaid entity. Therefore, the aforesaid payment of Rs.3.62 Lacs was disallowed and added to the income of the assessee.
2.3 Both the additions, upon confirmation by first appellate authority, is under appeal before us.
3. The Ld. Authorized Representative for Assessee [AR], Ms. Kshipra Singhvi, drawing our attention to the documents placed in the paper- book submitted that the assessee followed consistent method of accounting to value the stock which was accepted by the revenue in all the years. The attention was brought to the fact the adjustment made in closing stock in the impugned AY would result into corresponding higher opening stock in the next year which would reduce the profit of the next year and therefore, the adjustment was tax neutral and hence, not 4 ITA No.583/Mum/2017 Thomas Baker (Chemicals) Private Limited Assessment Year :2012-13 justified. In support of the commission payments, our attention has been drawn, inter-alia, to the agreement entered into by the assessee towards rendering of services. Per Contra, Ld. Departmental Representative [DR] supported the findings of lower authorities.
4. We have carefully heard the rival contentions and perused relevant material on record including documents placed in the paper-book. So far as the valuation of closing stock is concerned, we find that the assessee was following consistent method of accounting to value the same. Nothing on record suggest that there was any difference in quantitative details of closing stock of the impugned AY and quantitative details of opening stock of immediately next year. This being the case, we find substantial force in the argument of Ld. AR that the valuation of closing stock would be tax-neutral since the assessee was profit-making company in the next year also which is evident from assessment order of next year. The accounts of the assessee were subjected to Tax Audit which contain nothing adverse as to valuation of stock. No discrepancy has been found in the quantitative details of stock. This being the case, the addition of Rs.23.06 Lacs could not be sustained. By deleting the same, we allow this ground of appeal.
5. So far as commission payment to the related party is concerned, we find that the assessee has paid only Rs.3.62 Lacs to the said entity out of total commission payment of Rs.32.08 Lacs as claimed by the assessee during impugned AY which demonstrate that similar commission was being paid to the other entities as well. The commission was being paid to the said payee regularly pursuant to agreement dated 22/04/1998, a copy of which has been placed on record. Upon perusal of 5 ITA No.583/Mum/2017 Thomas Baker (Chemicals) Private Limited Assessment Year :2012-13 the same, we find that the said agent was to render certain services as to receipt / issuance of material as enumerated in Appendix-I of the agreement. The commission is stated to be paid @4% of bulk sales and @6% of other sales against business generated in state of Karnataka, which is also not under dispute. The assessee has paid commission in the range of 2% to 20% to other entities. Further, the perusal of financials of the payee for impugned AY as placed on record reveal that it has reflected profit of Rs.18.70 Lacs in the books as against the observation of Ld. AO that the payee was loss-making company. Keeping in view the overall factual matrix, the impugned addition could not be sustained. We order so.
6. Resultantly, the appeal stands allowed in terms of our above order.
Order pronounced in the open court on 08th January, 2019.
Sd/- Sd/-
(Pawan Singh) (Manoj Kumar Aggarwal)
ाियक सद / Judicial Member लेखा सद / Accountant Member मुंबई Mumbai; िदनां क Dated : 08/01/2019 Sr.PS, Jaisy Varghese आदे शकी ितिलिपअ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ!/ The Appellant
2. "#थ!/ The Respondent
3. आयकरआयु*(अपील) / The CIT(A)
4. आयकरआयु*/ CIT- concerned
5. िवभागीय"ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai
6. गाड/ फाईल / Guard File आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकरअपीलीयअिधकरण, मुंबई / ITAT, Mumbai.